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District court limits reach of internet services exclusion

The U.S. District Court for the District of Rhode Island recently ruled that an Internet Services Exclusion found in a Directors and Officers (“D&O”) insurance policy excluded coverage for only a small portion of an underlying judgment. Bank of Rhode Island v. Progressive Casualty Insurance Co., No. 13-164 (D.R.I. May 15, 2014). The insured bank sought coverage for an underlying judgment arising from negligence and other claims. The claimants, a corporate customer who had a checking account and line of credit with the insured and its principal, alleged that the insured mismanaged their accounts, enabling one of the claimant’s employees to embezzle funds. After a jury awarded damages, the insured sought to recover its defense and judgment costs from its D&O insurer. The insurer argued that the Internet Services Exclusion completely barred coverage. It excluded coverage for losses involving the insured providing “services through the transmission of data to or from an Internet website … owned, operated or controlled by the Company.” The court determined that the claimants’ allegations did involve providing “services through the transmission of data” over the Internet, such as the claimants’ employee transferring funds through the insured’s online banking system. However, on the whole, those allegations did not form a significant part of the claimants’ negligence claim. The court did not determine the exact allocation between covered and uncovered claims, as the policy included an arbitration provision for allocation disputes.

Compare jurisdictions:Litigation: Enforcement of Foreign Judgments

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